Ontario court finds Ontario law applies to purchases over foreign stock exchange
In Paniccia v. MDC Partners Inc., 2017 ONSC 7298, the Ontario Superior Court of Justice determined that Ontario was the most appropriate forum in which to hear a securities class action claim brought by Canadians who purchased the defendant’s securities over both the Toronto Stock Exchange and the NASDAQ. Notably, the Court also determined that, in the circumstances of this case, Ontario law should be applied to determine the claims of both the TSX and NASDAQ purchasers.
Background
The defendant (the “Company”) is a Canadian incorporated company with its registered office in Ontario and its head office located in New York. Its shares are listed on both the TSX and NASDAQ, with the vast majority of trading occurring over the NASDAQ. In 2015, a major investor sued the Company and its officers for secondary market misrepresentation in the U.S. The proposed class action was brought on behalf of all global investors who had purchased the Company’s shares over the NASDAQ. The U.S. class proceedings were dismissed with prejudice prior to certification in 2016.
In 2015, the plaintiff commenced his class action in Ontario, alleging both the statutory cause of action for secondary market misrepresentation under Part XXIII.1 of the Ontario Securities Act, and a common law claim for negligent misrepresentation. The claim was brought on behalf of Canadians who purchased the Company’s securities on both the TSX and the NASDAQ.
In 2017, the defendant brought a motion to exclude the NASDAQ purchasers from the proposed class. The Company conceded that an Ontario court had jurisdiction over the claims of both the TSX and NASDAQ purchasers. It argued, however, that under the doctrine of forum non conveniens, the U.S. was the more appropriate forum to resolve the issues of the NASDAQ purchasers.
Justice Perell dismissed the Company’s motion. In doing so, he found not only that Ontario was the more appropriate forum for the determination of all the plaintiff’s claims, but also that Ontario law would apply even to the claims of those who purchased over the NASDAQ.
Forum Non Conveniens
Determining Ontario was the appropriate forum to hear the claims of both TSX and NASDAQ purchasers, Justice Perell cited the “long arm jurisdiction” available under Part XXIII.1 where a real and substantial connection to the defendant has already been established. Justice Perell noted that the extra-territorial reach of Ontario securities law is inconsistent with “prevailing international standards that connect jurisdiction to the place where the securities are traded,” as is the case in the U.S. and several European countries. This extra-territorial application, he further noted, “may arguably be a contravention of principles of comity between sovereign nations and not a desirable way to administer global marketplaces”. Nonetheless, Justice Perell found that he was bound by existing case law which had decided that the Canadian intrusion on comity is accepted when some of the defendant’s securities are traded on a Canadian stock market.
Justice Perell clarified that the proposed class was not a global class, but rather included only Canadian purchasers. As such, comity concerns that would have otherwise arisen – for instance, the concern that American purchasers could use the Canadian proceeding to circumvent the U.S. policy in tying jurisdiction to the place of trading – were not at issue.
Ontario as choice of law
Having concluded that Ontario was the more appropriate forum to hear the disputes of all the claims, Justice Perell further determined that Ontario law would also apply to them. Breaking from established practice, the court held that it was not premature to decide the choice of law issue even though the defendant had not yet served a statement of defence and had therefore not yet pleaded that another law should apply. In the present case, however, Justice Perell found that the pleading of foreign law appeared to be inevitable and there was no reason to “duck” deciding the issue now.
Justice Perell was careful to clarify that his choice of law finding applied only in the specific circumstances of this case, namely where the Ontario court has jurisdiction simpliciter over the misrepresentation claims of Canadian purchasers over a foreign stock market at common law and under Part XXIII.1 of the Ontario Securities Act.
In these circumstances, Justice Perell reiterated that Part XXIII.1 applies extra-territorially, at least for Canadians, where the corporation’s securities trade both in Ontario and a foreign market. He cited as an additional factor that both the statutory tort and the common law tort of negligent misrepresentation are held to occur in the place where the misrepresentations are received and relied upon by the plaintiff, which in this case was Ontario.
Jurisdiction considerations
We have previously written about the efforts of Canadian courts to grapple with the issue of jurisdiction over multinational class actions. The Paniccia decision is the most recent of these cases in the securities litigation context. The most notable aspect of the Paniccia decision is Justice Perell’s determination that Ontario should be the choice of law. It will be interesting to consider whether the choice of law determination might differ in future cases, for example, where the proposed class includes not only Canadians but foreign purchasers, or where a Canadian corporation’s securities are traded exclusively on a foreign exchange.